The Wrong Hurricane Relief

By Stephen Hellinger, the New York Times,
7 December 1998

WASHINGTON -- Officials of the International Monetary
Fund, the World Bank and other
institutions and donor governments will meet here this
week to decide the economic fate of
Honduras and Nicaragua, both of which were ravaged by Hurricane
Mitch in October. If all goes
according to script, the financial "rescue" package that will
emerge will only deepen the two nations'
problems.

The United States has committed $290 million to relief and has
announced a two-year suspension of
payments on the two countries' enormous debt. Other governments
and groups have called for the
outright canceling of the debt, along with a huge aid program to
help rebuild their economies.

But aid and debt relief have come with a hefty stipulation
virtually everywhere they have been
provided in recent years: the receiving countries have been
required to adopt "structural adjustment"
policies. Acting as a cartel, the global financial institutions,
donor governments and commercial banks
have made countries restructure their economies to benefit
foreign investors rather than their own
citizens.

From Mexico to Thailand and from Zimbabwe to Russia, the results
have included the destruction of
local enterprises, rising unemployment, falling wages, greater
income inequality, declining food
production, cuts in essential public spending and a dangerous
polarization of society.

Adjustment policies had already done damage in Nicaragua and
Honduras long before the
hurricane hit. Both nations, increasingly dependent on foreign
aid, have lived under such strictures
for much of this decade. Capital has flowed to short-term
deposits with high returns, at the expense
of productive investments. More than three-quarters of the people
live in poverty.

Cuts and the privatization of government services have weakened
rural health care, and inadequate
environmental controls have led to deforestation. Hurricane Mitch
made the consequences of such
policies clear. The deforested landscapes helped make the
flooding catastrophic. The insufficient
health care has raised fears of cholera and malaria epidemics.

The adjustment programs also failed to reduce the countries'
foreign debts. That shouldn't surprise
anyone -- most countries that have adopted policies prescribed by
the World Bank and the I.M.F.
are now far more heavily in debt than they were before.

Imposing more of the same on Nicaragua and Honduras now would
only set their economies back
further. If the I.M.F. and the World Bank use their leverage in
this crisis, as they did in Asia, to
open the door even wider to foreign competitors, recovery by
local producers will be made all the
more difficult.

If wages are pushed even lower to attract investment, people
won't have enough money to
restimulate local economies.

Larger safety nets aren't enough. Fundamental changes that
reflect local conditions are required.
Small farmers must have access to productive land and to
affordable credit. Wages must be high
enough to support a family.

A trade policy that enables local producers to compete with
foreign goods and investors is critical.

Anything less will damage not only the people of Honduras and
Nicaragua, but also the rapidly
deteriorating reputations of the World Bank and the I.M.F.

Stephen Hellinger is president of the Development Group for
Alternative Policies, which is
coordinating with the World Bank a worldwide assessment of the
bank's policies.